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Tax Evasion Warning: Claiming Fake Exemptions Can Lead to 7 Years Jail and Heavy Fines


Tax Evasion Warning: Claiming Fake Exemptions Can Lead to 7 Years Jail and Heavy Fines

The Income Tax Department has adopted a more aggressive stance against fraudulent deduction claims by deploying advanced data analytics and artificial intelligence. These technologies have revealed a pattern whereby inflated claims primarily relate to House Rent Allowance (HRA), health insurance premiums, and general charitable donations. Should a fraudulent claim be substantiated, the taxpayer risks severe repercussions, including potential incarceration. According to taxation authorities, substantiated fraudulent deductions invoke a suite of punitive measures. Under Section 270A, a punitive charge of 200 percent of the under-reported tax may be levied in addition to the tax liability. Section 234B and 234C permit the Department to impose interest at the rate of 24 percent on the resultant deficiency. Furthermore, Section 276 allows for a custodial sentence of up to seven years. The Department has signalled its unequivocal resolve to pursue such cases without leniency.Expanded Disclosure Requirements in Revised ITR Forms The Income Tax Department has incorporated additional disclosure requirements in the latest Income Tax Return forms to address the growing incidence of inflated deduction claims. Among the new data points are detailed computations of House Rent Allowance, specifics of insurance policies reported under Section 80D, and related information. Taxpayers should bear in mind that the Annual Information Statement (AIS) systematically records and disseminates data on high-value transactions. Consequently, discrepancies related to spurious deduction claims are now detected with increased rapidity. Remediation through ITR-U Filing Advisors suggest that any taxpayer who suspects the inadvertent or deliberate reporting of ineligible deductions may rectify the error by submitting an ITR-U. This revised return form permits the disclosure of overlooked income, the annulment of fraudulent deduction claims, and the voluntary correction of previously submitted records. Taxpayers should, however, anticipate a marginally higher tax incidence, as a penalty on the additional tax payable is levied at the time of ITR-U submission. Timeliness is critical; the earlier the form is filed, the lower the add-on tax liability.Tax professionals recommend early submission of returns. While the Income Tax Department has allowed filings until September 15, the prudent course remains to file well before that date. The advantages of early submission are multiple, ranging from reduced paperwork stress to enhanced opportunities for error correction. Additionally, taxpayers are urged to claim only the deductions for which they possess verifiable documentation. This disciplined approach not only fortifies the return’s integrity but also expedites the response process should the Income Tax Department issue any subsequent inquiries.

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